From Here To There: Outlets Going Global

Although building momentum has slowed, outlet centers are making their mark, both domestically and abroad. In this country, existing outlet centers are being expanded and new ones are moving ever closer to cities and major department stores, which had succeeded in keeping them at bay for a couple of decades.

And in increasing numbers, developers are taking this uniquely American concept on the road to Europe, South America and Asia. Despite a fluctuating world economy, American outlet centers are going global, both in terms of expanding abroad and increasing efforts to attract foreign tourists.

"We will see significant growth happening outside the United States over the next five to 10 years, primarily in Europe," says Abraham Rosenthal, CEO of Baltimore-based Prime Retail, whose company is investigating development opportunities in Germany, Spain, France, northern Italy, Belgium and Holland, as well as adding a second center in Puerto Rico.

Looking abroad ... Since the first multi-tenant outlet center opened in 1974, the U.S. outlet industry has matured into a $12 billion business, comprising 320 centers that attract more than 500 million shoppers each year, according to the ICSC.

Now that outlet centers have saturated much of the United States, developers are surveying fertile European markets, where the outlet concept is as novel as it was in this country 20 years ago. "We're in the preliminary phases of developing relationships with local developers," Rosenthal says. "It's very much a new concept in Europe."

He sees the market there as wide open. "We have 55 million sq. ft. (of outlet centers) in the United States serving 270 million people. In western Europe, they have 260 million people with less than 3 million sq. ft. of outlet space."

The first American-style outlet centers opened in England and France in 1995, according to Lisa Quier, president of Quier Target Marketing in Washington, D.C., who has been a marketing consultant to outlet centers in this country since the mid-1980s and has become a developer of new outlet centers in Europe. "It's a gold rush right now," she says. "The ones open already are doing very well."

Disneyland Paris Factory Shops is just one project on the drawing board for Chelsea GCA Realty Inc. The Roseland, N.J.-based company is scouting possibilities in Japan and has formed a strategic alliance with London-based Value Retail PLC to pursue projects in Oxfordshire, England; Catalonia and Madrid, Spain; and Bavaria, Germany.

"Anyplace we can attract international tourists is important to our future site locations," says Tom Davis, COO of Chelsea GCA Realty Inc.

Because of the lack of available land, high costs and zoning restrictions, neither Rosenthal nor Quier foresee the kind of rapid growth in Europe that occurred in this country. "It will be much more controlled - like all other real estate in Europe," Rosenthal says.

"(Cities) are very protective of their local companies," Quier adds. "They are very hesitant to grant approval for out-of-town retail. They also want to protect their town centers. Retail in Europe is down overall, so they feel threatened by anything new."

Retailers in Europe are highly organized and wield a lot of power, she adds. Outlet centers have to be farther away from major retailer operations, generally 40 to 75 minutes away. "It's the way it was here a decade ago."

Rosenthal agrees that developing outlet centers is a more laborious process abroad. "The end product is not that different," he says, "but the planning is much more difficult."

The most attractive anchors (which in outlet centers refers to the biggest names, not necessarily the largest stores) in this country - Nike, Reebok, Polo/Ralph Lauren and Vanity Fair - are the same ones in demand in Europe, according to Quier. "They tend to be the driving force, the key players." She notes that malls in Europe tend to be smaller than their American counterparts and anchored by grocery stores.

European manufacturers have begun to realize that outlet stores are an effective way to reduce stock, Quier says. "Retail space is so expensive in Europe that you shouldn't keep marked-down goods on the floor."

She adds that it will be important to incorporate an entertainment component into European centers. "People there don't go anywhere just to shop. They want experience and entertainment," Quier says.

While U.S.-based outlet developers certainly have their eye on Europe, they also are looking a little closer to home. Memphis-based Belz Enterprises is building a 350,000 sq. ft., enclosed factory outlet mall in Puerto Rico, 15 miles west of San Juan. Belz, a family-owned real estate firm, chose Puerto Rico - which attracts 4 million tourists annually - because "it was where a lot of tenants were telling us they wanted to be," says Andrew J. Groveman, president of the company's Factory Outlet World division.

Belz Factory Outlet World Canovanas, which will open in spring 2000, will feature an attached multi-screen movie theater. "What we're looking to do is create an environment of fun," he says.

Canada should also see growth in outlet center development. "It's going to be a phenomenal market," says Quier. "That will be the next big wave in North America."

Or attracting internationals at home Shopping is the No. 1 activity for international tourists, according to the ICSC, and existing centers in this country are continuing aggressive marketing efforts in Japan, Brazil, Canada and other countries to ensure they get a share of that market.

With millions of visitors each year, many U.S. outlet centers rival major tourist attractions in their area. To create an internationally friendly environment, some centers provide signage and printed materials, including size comparison charts for shoes and apparel, in other languages.

Woodbury Common Premium Outlets, a Chelsea GCA Realty center in New York that features 220 stores in 843,000 sq. ft. of space, attracts more than 10 million visitors per year, including numerous international tour groups. The company advertises in newspapers and on television in Japan in an effort to attract tour groups, and visitors to the center are greeted by signage and audio messages in six languages as well as bilingual concierges.

The softness in world markets has called for more proactive marketing measures, Davis says. While outlet centers are not reporting a decrease in traffic, some have noted a decrease in dollars spent.

Chelsea's center in Waipahu, Hawaii - Waikele Premium Outlets -has felt the biggest impact from the Asian economic crisis, he says. "Any tourist location visited by Asian tourists has felt an impact. But we've also seen the benefit of some very good years by that shopper."

Groveman argues that outlet centers can weather economic downturns much easier than traditional retail. "We think the factory outlet concept is recession-proof and inflation-proof because it appeals to the consumer in good times and in bad," he says.

An eye toward domestic growth In their early years, factory outlet centers were developed in remote areas primarily because major department stores viewed them as wolves at the door. In recent years, however, retailers such as Saks Fifth Avenue and Neiman Marcus have launched their own outlet stores, and new centers are being built closer to major cities, opening the door for more entertainment components, which will attract both locals and tourists.

While the rate of new centers being built in this country has slowed during the past two years, many existing centers are being expanded and the new projects tend to be larger and closer to major metropolitan areas.

"Back in the 1980s, you literally had to be 120 miles from regional malls with any department store anchors," Davis says. "Site selection has changed dramatically." Now, most outlet centers are located 30 to 60 minutes from the nearest metropolitan area.

"We've seen it go from two hours from markets to one hour to 30 minutes to 15 minutes," says Victor Vance, president of Auburn, Ala.-based Lease America, which specializes in leasing independent outlet centers. Lease America's affiliate company, Outlet Development, is building Shoppes at Athens, which will serve north Alabama's mountain/ lakes region.

"We need to be closer to major metropolitan centers because we're not the novelty we once were," he says. "People won't drive four, five or six hours to visit us anymore."

Though no longer novel, the outlet market is still strong, says Trina Leonard of North Potomac, Md.-based Leonard Communications, which provides marketing resources for outlet centers. Just as in traditional centers, outlet projects are adding entertainment, especially as they move in closer to metropolitan centers, she says.

Belz began adding entertainment in 1990 when a carousel became part of Phase II of the company's Orlando center. The company also has incorporated laser light shows and a robot at some centers.

In addition to entertainment, outlet centers are attracting an increasingly diverse tenant mix. Nevertheless, apparel and footwear stores still make up an average of 69% of GLA, according to ICSC's Factory Outlet Index, which notes an increasing presence in recent years of electronics, jewelry and fast-food operations.

Outlet center tenant mixes have not kept up with the times, Quier points out. "Brands unheard of five years ago are hot now," she says. "While banks love to see 10-year leases, they are not practical in a changing marketplace."

The market was boosted when retailers such as The Gap and Eddie Bauer discovered that outlet stores can move merchandise. The Gap provided a ripple when it entered the outlet industry two years ago, says Gary Duncan, senior vice president of leasing for Chicago-based Horizon Group Properties Inc.

"Everybody is waiting for that next big hit, in terms of a new player in the industry on a wide-scale basis," he says. The centers being built now are better planned and designed more attractively, with an increasing preference for the village setting as opposed to the earlier strip center format.

"The quality of projects themselves and the build-out that tenants do on the interiors of stores have improved," Vance says. "There's also more aggressive marketing."

Marketing materials, which initially could not mention brand names, have become more sophisticated, as has the entire industry, Quier says. "It used to be that deals were done on the back of an envelope," she recalls. "It's getting much more professional."

But some centers have been neglected too long to be saved, says Quier, who expects some closings in the industry. To succeed, she says, new centers will need to be better-tenanted, better-located and better-designed. "They'll be improved, or you won't get tenants to go in and you won't get it financed," she says. "It's being required that they be more thought out."